The SEC solicited comments on the MSRB proposal to amend Rule G-12 ("Uniform Practice") regarding close-out procedures for municipal securities. The request for comments was published in the Federal Register.
The MSRB stated that it believed the "more timely resolution of broker-dealer fails" provided in the amendments would "ultimately benefit customers by providing greater certainty" that their fully-paid-for securities "are in fact owned in their account, not allocated to a firm short, and would benefit dealers by reducing the risks and costs associated with interdealer fails."
Specifically, the proposed amendments would:
- "significantly compress the timing" of close-out procedures by permitting a close-out notice to be issued the day after the purchaser's original settlement date;
- shorten the time period in which the purchasing dealer must complete a close-out on an open transaction to 20 calendar days;
- shorten the current allowable timeframe for execution from eleven to four days after electronic notification;
- require a purchasing dealer, when notifying the selling dealer of an intent to close out inter-dealer fail transactions, to continue to prompt the Depository Trust and Clearing Corporation to "exit" the position from continuous net settlement and hold the two parties responsible for effecting the close-out; and
- "retire" the MSRB's Manual on Close-Out Procedures.
Comments on the proposed amendments must be submitted by June 22, 2016.
Commentary
Firms should review this rule proposal closely, since it may have significant impact when firms are forced to buy illiquid securities on an accelerated timetable.
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